There was a school of German liberals in the 19th century, and this is a masterpiece to emerge from that school. Eugen Richter saw what socialism would mean, and he traced it all out in a marvelous novel is so prescient that it’s spooky. I had to close the book several times to get over the chills. One reason it is so chilling is that it is written from the point of view of a defender of socialism. To see how the narrator comes to terms with the poverty, the horror, the death – it is all just a bit too realistic a forecast of 20th century intellectual life.
I can’t recommend this book too highly. And I’m thrilled that the Mises Institute is able to make it available again.
{ 103 comments }
Really a great book. In fact, a laugh-out-loud book. It prefigured all the mistakes the Marxists would make, even before they ever took over any governments. Obviously the author thought, as everyone else did, that Marxism-Socialism would arrive in Germany first. But he captures the regimentation to a T. The first thing rule by brainlessly literal bureaucrats did was to make life no fun to live.
My problem is that most people here will assume that socialism must, by some ineluctable law, be condemned to make the same mistakes over and over again in perpetuity. And human nature’s not like that. Look at the capitalists. They keep making new mistakes, having thought they’d learned from the old ones.
Few if any socialists today advocate anything like the totalitarian state described in Richter’s Pictures. Mostly what they endorse is that we place a priority on bringing everyone up to the ability to earn a living wage first. Then when we no longer have hunger and need, with the money that’s left over anyone who wants to get rich can be free to give it a try.
“Mostly what they endorse is that we place a priority on bringing everyone up to the ability to earn a living wage first.”
A living wage. LOL.
Capitalism is the only reason anybody has the time to become a socialist and isn’t too busy foraging for berries or hunting for wild hens!
If they propose to first bring everyone up to a living wage, that means adopting capitalism.
I feel your ire at the mere thought that employees be given a living wage.
Let’s see where we stand under capitalism’s all-encompassing benificence. The oppressive statists we elected to represent us are trying to force us to pay our serfs $7.25 an hour… which clearly tramples our rights as free citizens. What are the implications of such a draconian law?
First, if we employ real estate’s thirty percent rule, we find that a worker being entitled to such an extravagant sum could qualify to rent an apartment costing as much as $377/month.
Imagine that! The very idea! It’s Communism!
Fortunately we’ve seen the results of such an insidious plan in a real-life experiment. Cour d’Alene, Idaho was suffering under the weight of this terrible federal law, at a time when the federal minimum was $5.25, while nearby Spokane, Washington saw the state minimum go to something like $8. Highest in the nation.
We can easily see what would happen. All the businesses would relocate to Idaho, keeping their labor costs down. Spokane would become a ghost town, with tumbleweeds in the streets. Theory predicts this… so it must be so.
Instead what happened in real life was that the people who form the consuming public for businesses employing cheap labor– that is, fast foods, dollar stores and so forth– all moved to Spokane, so they could get good paying jobs. The cheap rental market there boomed.
And even though the price of pizza had to go up in Spokane by a whole buck ($1.00), over what it was before the new minimum came into effect, the Spokane pizza joints were selling more of them than ever… while the Cour d’Alene pizza joints were dropping their prices to try to stay in business. They couldn’t compete in such a market.
In a word, a magnificent theory became undone by an inconvenient reality.
Good wages are good for business. I now point to my second exhibit, the Feudal Era. A thousand years in which there were NO wages. And no business.
Even Marx knew better than to use fuedalism as an argument against capitalism.
Michael,
I have recently had an experience with my first grader being given a “free” education in a well funded public school in a upscale ocean side suburb of Boston. The first month of school my son was thrilled as he started to gain more proficiency in his reading skills and learn some new concepts in math. By the second month he was complaining that it was all incredibly boring and he hated school….his teacher said he was doing very well and she would try to keep him more challenged. As Thanksgiving approached he was crying every day before school and had learned valuable new techniques to fake sickness. After the spring testing period I prepared for our schedule parent teacher meeting , his homework assignments were on the level of what his 4 – year old brother’s skill set(identical to 6 months before).
Before I could even start to ask the teacher some questions she said she was sorry she hadn’t really even talked to him in over a month as she was trying to teach the bottom of the class to read in preparation for the standardized testing.
Luckily we found a actual school nearby that will teach him next year. The price is 17 grand a year. I know the Keynsians view this expense of ours as more wasteful than funding keno-playing union workers or funding the brothels and bars in DC , but luckily they can’t stop us yet.
As much as you advocate for the working poor and get despondent over the low minimum wage, I wonder how you view the regressive SS/FICA taxes, that take 15-17% of the serf money from the first paycheck…all so that the money can be transferred to healthy/wealthy older people with that have lifespans longer than the working poor? Average lifespan of black male(67)….average lifespand of white female(78)…differences in wealthe widen this gap even further. I suppose you think you are being so nice by taxing the poor and giving them a “free” education where the best they can hope for is training to take orders and stifle independent thoughts?
Minimum wage is another way to keep the serfs from ever gaining job experience and advancing in their careers. If competition forces the capitalist(pizza store owners) to lower prices on food, that doesn’t exactly sound like a nightmare scenario to me…but then again I have three hungry children to feed…next you’ll be complaining about the low prices of meat and bread and eggs. Tell me more about how those of us in favor of low food prices and eliminating taxes on the poor are actually hurting the poor.
Gabe, your anecdote does not refute my anecdote. Public schools have as their mission to educate the public. And if the school board feels it is its priority to bring up the bottom of the class before they can devote time to the brilliant few, that’s just in alignment with their mission.
Fortunately you have options– and I see you have exercised them. Your money is being well spent in sending your bright youngster to a better school (although I think you could have gotten him into one for a lot less than 17K). And although you don’t realize it, your money paid in to provide public school funding is also very well spent.
I have had no children. Yet I feel my taxes that have paid for public schools has been a good investment in the nation. It has gone to pay other people’s kids. If they were allowed to stay ignorant and superstitious, with no concept of civil duties or public spirit (as was the case in prior centuries) America would be a MUCH more primitive place in which to live and do business.
I would readily spend more money on the public schools, if I thought it might result in the American people being even better educated than they are. They have a long way to go before becoming true members of the polis.
Social Security? That’s an enforced retirement account. And there have been so many complainers of late that it probably ought to be made voluntary, so you can opt out and see how you do without it. But initially it was seen as a good idea, in the best interest of that majority of Americans who spent every cent they made, and became destitute the day they were too old to work.
I paid into it with every dollar I ever earned. And now I’m getting checks back each month from it. I neither feel I’ve been put upon to contribute, nor feel I’m unjustly benefiting from it now. It’s working exactly the way it’s supposed to.
“Tell me more about how those of us in favor of low food prices and eliminating taxes on the poor are actually hurting the poor.”
You should have been a Jesuit.
Michael,
Theory would predict businesses moving to Idaho EVERYTHING ELSE BEING EQUAL. That’s the catch. What are tax rates in Idaho vs. Washington? What are the age differrences of the populations? What are their value scales? Etc., etc.?
And what about those workers in Spokane who are not productive enough to be paid the new minimum wage and didn’t get hired? Are they better off out of a job or making less than minimum wage?
Finally, please answer the question I have not yet heard any advocate of the minimum wage answer – if it it’s good for business and employees why not raise it to $100/hr?
When you comment was posted, I was writing mine. It gives even more weight that we both detected the same usual fallacies that are often used by these people.
Surely you can offer better arguments than these. The one about raising the minimum to $100 is tired and tattered. There is a sweet spot to the wage-price issue– as there is to many other issues, principally the matter of tax rates and revenues. It’s excessively simplistic to think that one can either raise all wages to the skies, or lower all prices to the floor, and everything will be hunky dory. Really!
But I get your point. If we just raised the income tax rate to 400% we could probably pay the federal debt down in no time.
2. Your insistence that we examine ALL the variables that might have gone into the boost in business in Spokane seems to me a bit pointy headed– like the kind of issue a student in class might raise. But it’s pretty simple. All things WERE the same in the two cities. Then one thing changed. Then immediately the other thing changed.
The conclusion is inescapable. Low-wage individuals made the rational decision to move where wages were higher. And they brought the business they generated with them. They did NOT elect to go back the 25 miles to Cour d’Alene every night just to get pizza for a dollar less.
If you have trouble following just how their is a sweet spot to wage and price issues, or tax collections and rates, please inquire. I’ll go into further detail.
“It’s excessively simplistic to think that one can either raise all wages to the skies, or lower all prices to the floor, and everything will be hunky dory. Really!”
Well, no’one is saying that here obviously, but ok, what is the theory then that you are using to decide what the “sweet spot” is? You appear to be just eyeballing it. What is the theory that illustrates your point and would allow us to at least try, in a crusoe-type scenario, to work out the optimum wage increase? And how do we define the “sweet spot”? “Sweet” for whom?
If you don’t have such a theory, your comments on your love of the “scientific method” will be called into question.
“All things WERE the same in the two cities. Then one thing changed. Then immediately the other thing changed.”
You really are joking here surely. Do you know anything about systems? Do you understand that some things that happen NOW have causes just before, whereas some others have causes from some time ago, and that in complex systems, these are constantly interacting in ways which can not be untangled.
You are saying I could be idling the car one day and then just as I turn on my indicator the distributor goes. Must have been the indicator then? Things “WERE the same” before it went and “Then one thing changed. Then immediately the other thing changed” so it must be, right?
these are some of the lamest arguments I’ve seen of any challenger on this site. I notice as soon as I asked you on the other thread to actually start defining things from scratch you ran a mile.
“Your insistence that we examine ALL the variables that might have gone into the boost in business in Spokane seems to me a bit pointy headed– like the kind of issue a student in class might raise.”
No, seriously, you have to be kidding. A willingness to overlook all the variables sounds to me more like something a student might say. If you’re willing to overlook such things, maybe you’d like to buy this perpetual motion machine I have. It generates energy, honestly, without any input**!
** except the electrical supply from the mains. No need to worry about that, it’s not significant, trust me, only a student would worry about that.
If you can explain to us how people who cannot be productive enough to justify the minimum wage can get jobs, please do. Should the employer take the hit for the common good? What? How do the people at bottom of the ladder, who you claim to care about but really don’t, get jobs? it’s a simple question.
“Surely you can offer better arguments than these. The one about raising the minimum to $100 is tired and tattered.”
Why, exactly? What is your reason for saying this?
We don’t know what were the other living conditions in Spokane versus Cour d’Alene. The empiricists like to “nit pick” data sets that confirms their hypothesis while leaving everything out. What were the tax rates? How was the rental market faring? All of this to say that to compare how a change (in this case the minimum wage) trully affected a population, all other things needed to be equal to start with. I doubt this was the case here…Also, if the low rent market boomed, prices surely went up not too long after. That nullified the wage increase.
Steven– for some reason my response to your comment was posted several spaces above, under a thread initiated by Richard Moss. Please look for a comment from me beginning “Surely you can offer better arguments than these. The one about raising the minimum to $100 is tired and tattered…” etc. It’s intended for you.
I also note your conjecture that “Also, if the low rent market boomed, prices surely went up not too long after.” As it happens, my area of expertise is in rental real estate. And those things don’t happen. If a town has a supply of vacant rental property and they become filled, the next rentals to come on the market may be offered at a higher rate. But prices in general don’t go up.
Such an event is entirely beneficial to the community. I can imagine no instance where a community is best served by having low-rent housing stay vacant. In time these neglected properties just become derelict, and present crime and fire hazards. Empty homes are a great burden to their owners.
michael:
Like every other statist who promotes violent price-fixing to purportedly change an “incorrect” price , you ignore the effects of a wage price-fixing on those who DON’T get jobs.
(Of course, we have to remember that you have no way of knowing what the correct price for the labor in question might be, since you are neither paying for it nor working for it, and are thus talking out of your ass, so to speak.)
As a direct result of this kind of violent price-fixing, you make it illegal for anyone to employ people whose labor is worth less than the dictated minimum. These people, who are the poorest, least educated, most vulnerable in society, go from low employment to no employment. You kick the weakest people in the teeth.
You can’t snap your fingers and make their labor more valuable. Only a child would think he could. You aren’t offering these people a job yourself, obviously. You do NOTHING useful to help ANYONE. The only thing you could possibly accomplish with your snide, immature, sniveling advocacy of the violent price-fixing of wages, is hurting the poorest people in society, even while you blithely spend other people’s money. What a hero you are!.
Economics is about the seen AND the unseen. The unseen effects of the violent price-fixing of wages are felt by the people who never get jobs because they don’t exist. These harms are greater than the seen effects, for which you spend so much time congratulating yourself.
Magnus– You get an A for contentiousness. Let’s look at your charges:
“Like every other statist who promotes violent price-fixing to purportedly change an “incorrect” price , you ignore the effects of a wage price-fixing on those who DON’T get jobs.”
Nope, didn’t do that. I examined the effect on low-wage earners (good) and on small business owners (good). Both benefitted.
Here’s where such people DON’T benefit: when prices and wages are under the control of profit takers. People who bleed all the money out of a system so there’s nothing left to support the actual operation.
Unlike many of the people here, who I assume from their comments are mostly academics, investors or disinterested critics, I come from a business environment. I see the effect when management and ownership collude to drain the profits from an otherwise viable enterprise. Its a short-sighted strategy. When the business itself is starved for funding it languishes. And the greater community is served no more than are the individuals whose efforts make the business work.
Against this unopposed force, the combined efforts of an enlightened citizenry and a responsive government are necessary. Remember that when you talk about “violent price fixing” it starts with a corporate structure whose entire focus is to drive wages through the floor, regardless of human cost.
My anecdote illustrates that such a strategy can be counterproductive. Whether or not the decision to raise wage rates in Washington State was government-initiated, the fact remains that it was good for business. Pizza shop owners made better profits through selling greater volume.
The other thing the story shows academics who look at life through a narrow window, is that there are more things out there than mere theory can explain. We need to work out in the world to see how things really are.
So let’s ask ourselves now, who has been damaged by this rise in wages? The only group I can think of are the dumb business owners in Idaho, who didn’t also raise their wages.
But you then make an unsupported claim, one I would ask that you offer support for at this time:
“The only thing you could possibly accomplish with your snide, immature, sniveling advocacy of the violent price-fixing of wages, is hurting the poorest people in society, even while you blithely spend other people’s money.”
(a) No one has been hurt. (b) Relies on an idiotic definition for ‘violent’. (c) Snide in tone, conceivably (I would rather say ‘disrespectful’). But neither sniveling nor immature. These are lessons I’ve gleaned from a lifetime of involvement in business– that is, of actually trying to keep the bottom line healthy while both my customers and workforce stay happy. So let’s rather say my comments have been informed by actual experience.
Unlike many of the people here, who I assume from their comments are mostly academics, investors or disinterested critics, I come from a business environment. I see the effect when management and ownership collude to drain the profits from an otherwise viable enterprise. Its a short-sighted strategy. When the business itself is starved for funding it languishes.
Michael, I come from a business environment and I’m paid far more than the minimum wage because I’m far more productive than the minimum wage worker. That said, any business that behaves in such a way as you describe deserves to go out of business.
Against this unopposed force, the combined efforts of an enlightened citizenry and a responsive government are necessary.
Bankruptcy. Liquidation. No bailouts.
Remember that when you talk about “violent price fixing” it starts with a corporate structure whose entire focus is to drive wages through the floor, regardless of human cost.
Then why isn’t everybody just being paid minimum wage? Why are there $30,000, $50,000, $100,000, $1,000,000+ earners, etc., ? Please explain.
Steven– You’ve been drinking the Koolaid. Ford wasn’t successful because his company was capital intensive. Far from it.
“Henry Ford (July 30, 1863 – April 7, 1947) was the American founder of the Ford Motor Company and father of modern assembly lines used in mass production. His introduction of the Model T automobile revolutionized transportation and American industry. He was a prolific inventor and was awarded 161 U.S. patents. As owner of the Ford Motor Company, he became one of the richest and best-known people in the world. He is credited with “Fordism”, that is, the mass production of large numbers of inexpensive automobiles using the assembly line, coupled with high wages for his workers. Ford had a global vision, with consumerism as the key to peace. Ford did not believe in accountants; he amassed one of the world’s largest fortunes without ever having his company audited under his administration. Henry Ford’s intense commitment to lowering costs resulted in many technical and business innovations, including a franchise system that put a dealership in every city in North America, and in major cities on six continents. Ford left most of his vast wealth to the Ford Foundation but arranged for his family to control the company permanently.”
(from Wikipedia)
What he invented was assembly line methods of efficiency that made his operation more productive by many times, over the old way of building cars by hand, one at a time. Nearly everyone knows that.
“Ford & Malcomson was reincorporated as the Ford Motor Company on June 16, 1903,[11] with $28,000 capital. The original investors included Ford and Malcomson, the Dodge brothers, Malcomson’s uncle John S. Gray, Horace Rackham, and James Couzens.”
Even in 1903, $28,000 was not a lot of startup money. It was a small LP, cobbled together by a handful of friends.
I know you would LIKE TO think that money alone made the miracle possible. But here you would be flat wrong.
In your second argument, you attempt to demonstrate that the fact that as some people in Spokane have had a raise (those at the bottom of the pile), that makes everyone else poorer. There are so many things wrong with that formula I wouldn’t even start to list them all.
“The consequence of all this is a general imporishment of people consuming these goods and services and the minimum wage workers are no better off after the price increases have taken effect.”
Please tell me this is not what you meant. You’re saying this means we live in a zero-sum world, and everyone else’s good fortune diminishes me.
If that WERE true, it would mean that the concentrations of capital we see today are directly responsible for so many people’s lack of operating funds. Are you sure this is the message you want to send?
Let’s take it from the top:
“Sadly, when you artificialy raise the minimum wage like that, the ones that usually suffer the most are the people making just a little more than the minimum wage who don’t see their wages go up.”
So if everyone making less than eight bucks starts making eight bucks, that means that the ones who were already making eight bucks aren’t as well off as they were? Because now there’s no one making less than them? I think this theory needs work.
I produce as Exhibit A, the fact that consumer prices are not currently going up. A dollar’s still worth what it was two years ago. As are eight dollars.
michael you are seeing the immediate benefits but not the unseen consequences which dooms your argument from the get-go
mr taco: Spell out the dire, unforeseen consequences that befell Spokane, cursed with the burden of more jobs, greater business profits and more money in circulation within the community. Who has lost? And how?
Also, note that mine was not an argument. It was an instance. You might respond with another instance, where wages were raised and terrible consequences ensued.
Let’s try Henry Ford’s Model T plant. Ford voluntarily increased wages– with the result that he became the most successful manufacturer of his entire era.
it your job buddy your the one telling us how great minimum wage yet you are
forgetting the unseen consequences
look for it your else you are missing out on a good lesson
padawan
“You might respond with another instance, where wages were raised and terrible consequences ensued.”
How about something more common but very similar like rent controls. Rents are reduced and terrible consequences ensue – always?
http://www.lewrockwell.com/block/block146.html
Walter Block has written a lot on this. What is your problem with this?
Michael
Henry Ford was able to raise wages because he acquired capital which made his workers more productive. He was able to reduce the production cost of every car his workers produced. He was thus is a position to raise his workers wages and lower the price of his cars. This is how capitalist societies got richer.When the governements, by the means of their monopoly on violence, force employers to artificialy raise the wage of his employees, this can only lead in general impoverishment. The worker is certainly not producing more for the extra wage he’s receiving and the employer has to raise the price of his goods and services in order to absorb the extra labour cost.
Finaly, in my earlier comment, I didn’t say that all prices in Spokane rose. Some do and some don’t. However, if the demand for cheap housing or appartments suddenly rises. The price for these goods (appartments and low prices housing) will raise for certain because the extra supply needed to keep prices stable don’t just appear out of nowhere when the extra demand arrives. I’m quite certain that the new renters paid more and the people renewing their leases also paid more. The consequence of all this is a general imporishment of people consuming these goods and services and the minimum wage workers are no better off after the price increases have taken effect.If you tell me that a surge in the demand for housing has no effect on price, then you’re denying that the real estate boom (induced by the Fed) that wreaked our economy this decade has ever taken place.
Sadly, when you artificialy raise the minimum wage like that, the ones that usually suffer the most are the people making just a little more than the minimum wage who don’t see their wages go up. The rise in the prices of appartments over there has made them poorer for sure. If Spoke has rental price control (I don’t know the laws there), then the prices don’t go up but the quality of the appartments there must not be that good and a boom in the population creates shortages. I’ve lived in Montréal, Québec for many years and I’ve seen first hand what price control does…
Steven– You’ve been drinking the Koolaid. Ford wasn’t successful because his company was capital intensive. Far from it.
“Henry Ford (July 30, 1863 – April 7, 1947) was the American founder of the Ford Motor Company and father of modern assembly lines used in mass production. His introduction of the Model T automobile revolutionized transportation and American industry. He was a prolific inventor and was awarded 161 U.S. patents. As owner of the Ford Motor Company, he became one of the richest and best-known people in the world. He is credited with “Fordism”, that is, the mass production of large numbers of inexpensive automobiles using the assembly line, coupled with high wages for his workers. Ford had a global vision, with consumerism as the key to peace. Ford did not believe in accountants; he amassed one of the world’s largest fortunes without ever having his company audited under his administration. Henry Ford’s intense commitment to lowering costs resulted in many technical and business innovations, including a franchise system that put a dealership in every city in North America, and in major cities on six continents. Ford left most of his vast wealth to the Ford Foundation but arranged for his family to control the company permanently.”
(from Wikipedia)
What he invented was assembly line methods of efficiency that made his operation more productive by many times, over the old way of building cars by hand, one at a time. Nearly everyone knows that.
“Ford & Malcomson was reincorporated as the Ford Motor Company on June 16, 1903,[11] with $28,000 capital. The original investors included Ford and Malcomson, the Dodge brothers, Malcomson’s uncle John S. Gray, Horace Rackham, and James Couzens.”
Even in 1903, $28,000 was not a lot of startup money. It was a small LP, cobbled together by a handful of friends.
I know you would LIKE TO think that money alone made the miracle possible. But here you would be flat wrong.
In your second argument, you attempt to demonstrate that the fact that as some people in Spokane have had a raise (those at the bottom of the pile), that makes everyone else poorer. There are so many things wrong with that formula I wouldn’t even start to list them all.
“The consequence of all this is a general imporishment of people consuming these goods and services and the minimum wage workers are no better off after the price increases have taken effect.”
Please tell me this is not what you meant. You’re saying this means we live in a zero-sum world, and everyone else’s good fortune diminishes me.
If that WERE true, it would mean that the concentrations of capital we see today are directly responsible for so many people’s lack of operating funds. Are you sure this is the message you want to send?
Let’s take it from the top:
“Sadly, when you artificialy raise the minimum wage like that, the ones that usually suffer the most are the people making just a little more than the minimum wage who don’t see their wages go up.”
So if everyone making less than eight bucks starts making eight bucks, that means that the ones who were already making eight bucks aren’t as well off as they were? Because now there’s no one making less than them? I think this theory needs work.
I produce as Exhibit A, the fact that consumer prices are not currently going up. A dollar’s still worth what it was two years ago. As are eight dollars.
I don’t see anything astounding about the Spokane vs. Coer d’Alene story. Imagine, instead, that Spokane businesses had voluntarily raised the wages of their lowest paid employees. Wouldn’t one expect there to be a migration of workers to Spokane?
The only mystifying element is why the Coer d’Alene businesses didn’t raise their wages voluntarily in order to compete with Spokane.
“The only mystifying element is why the Coer d’Alene businesses didn’t raise their wages voluntarily in order to compete with Spokane.”
Actually, they did. One article on the subject from 2007 says that CdA businesses like Taco Bell raised their wages from the 2006 minimum wage of $5.15 to $7.00, about the same as the (then) minimum wage in Spokane. One business owner explained that, at $5.25, the only applicants he gets would be very low productivity workers. All of this is very much in line with Austrian economic thought.
What really confuses me is how Michael can consider CdA, with a population of just under 35,000 in 2000, to compare in any way economically with Spokane, which has a city population of 195,000 and a metro population of almost 400k, with a much greater variation of industries, including high-tech and biotech.
In the absence of minimum wage laws, you would expect that areas with a surplus of labor would have lower wage rates, while those with a higher demand for labor would have higher wage rates. The relationship between minimum wage and economic activity is the inverse of what you think it is. Legislators are able to push the minimum wage up higher and faster when the local economy is in better shape. Few workers are effected because most are already being paid above the minimum wage, since labor is in higher demand.
As for Henry Ford, he was experiencing high turnover when he decided to raise wage rates. He was asking below what the market would give his workers for their skills, given the difficulty and danger of their jobs. Raising wages corrected this mistake, brought in more stable, higher-skilled workers and made his whole operation more efficient. Ford corrected a mistake. Crediting federal legislators with the same insightful decision-making as Henry Ford, only on a national scale is, to me, the height of idiocy.
Scott D,
Re: Ford raising wages
Just today, a manager at a local restaurant was telling me about when restaurant executives decided to raise pay and provide an employer sponsored medical plan to their employee’s and their dependents both absenteeism and turnover dropped.
They pay more than the minimum wage and probably more than other similar restaurants in this market, although I can’t confirm this with any data at the moment. Their food is a little more expensive than average, but the food quality and service is better than much of their competition so they have a loyal customer base.
Raising pay and offering group plans (on their own free will) has saved the company money because of the reduction in new hire training costs and the increased efficiency that comes from an experienced staff. In other words, they’re more productive and those productivity gains help pay for the group plan.
Government intervention that tries to coerce a similar workplace standard is unnecessary. The best and smartest competitors will do it on their own. Eventually, imitators will follow or risk losing business.
Scott– It’s a question worth exploring:
“What really confuses me is how Michael can consider CdA, with a population of just under 35,000 in 2000, to compare in any way economically with Spokane, which has a city population of 195,000 and a metro population of almost 400k, with a much greater variation of industries, including high-tech and biotech.”
It’s just not pertinent information. The point was that Couer d’Alene was enjoying normal pizza sales PRIOR to the raising of the Washington State minimum wage, then they weren’t. Something happened. And what happened was not a change in the relative sizes of the two municipalities.
Looking into it, they found a migration of low-wage workers from Idaho into Washington. Thus there was a net loss of customers on the Idaho side for cheap stuff, like pizza.
We’ve seen a similar effect in Durham and Research Triangle Park, NC. A lot of companies have moved plant and corporate hdq’s here in recent years. The move creates lots of new jobs in support roles. And because a lot of money is being spun off from these high incomes into the surrounding neighborhoods, there’s more money in circulation. So the support jobs being created also tend to be higher income than comparable jobs in poorer parts of the state.
Affluence begets affluence. Show me a county where most people are making close to the minimum, and I’ll show you a place even the rich folks don’t have much money.
Is the converse true? I haven’t looked this up but you could check me on it. In Silicon Valley, do you think the fast food workers are making minimum? A buck above minimum? Three bucks above minimum? It would be interesting to find out.
Re: Michael,
You’re right – that is your problem.
Yes, Let’s take your example of Henry Ford.
A cut-throat capitalist whose relentless drive for efficiency made it possible for him to not only make lots of money, but to raise his wages specifically because his employees were so much more efficient than anyone else’s.
Had he paid a “living wage” without FIRST establishing those efficiencies, there would be no Ford Motor Company.
As has been said further down this discussion without you seeming to understand, very few people are paid the “minimum wage” for any length of time. This is not because of any statute, but because people who know a trade are more valuable to a firm than those who do not. The establishment of a legal minimum wage merely prices out of the market those who are unskilled such that their work is not worth that minimum wage.
It’s not like basic economics is some kind of mystery, it’s even in nursery rhymes:
“See-saw Marjory Daw, Johnny shall have a new master,
He shall have but a penny a day, because that’s his marginal utility.”
Your sad attachment to such concepts as “living wage” demonstrate exactly why socialists are condemned to making the same mistakes over and over again in perpetuity. You’re doing it right now.
Most people here are not assuming. Unlike you, they learn from history and notice the pattern of Socialism’s inevitable, repetitive, destruction.
It is a fascinating and chilling book. I couldn’t recommend it more heartily.
It’s available online here
and here:
http://mises.org/resources/4994/Pictures-of-the-Socialistic-Future
I understand why, but every time a blog post is made advertising a new book available, the link is always to the store and the link to the online version (and every time I’ve looked, one has been available) is made as difficult to find as possible.
There is no plot here. I try to blog new books in the free literature section too. And, believe it or not, it is far more of an event around here to set up, print, and warehouse a book than it is to drag and drop and link a PDF. In any case, from the front page, one is as easy to find as another. By the way, I don’t see any mainstream publisher giving away what they publish, so I’m tempted to say: quit your kvetching.
I have to agree with Mr. Tucker here. All one has to do is simply type the title in the search space, and everything should be fine. I’m not sure whether I consider myself a full-fledged Austrian, but the MI bookstore is an absolutely amazing resource. Hell, on a number of occasions, Mr. Tucker actually gave the order to publish books that I simply asked about. And he was a gentleman about it too, even when I drove him “bonkers.”
thank you for the pdf. incidentally, how’s the introduction by caplan?
“how’s the introduction by caplan?”
Interesting and informative. What could be better?
Why is Eugen Richter credited as “Eugene”?
michael the super-genius: Here’s where such people DON’T benefit: when prices and wages are under the control of profit takers. People who bleed all the money out of a system so there’s nothing left to support the actual operation.
Uh, no.
Let’s say that there’s some business who, in your arbitrary, uninvolved OPINION, is taking “too much” money out of the business, leaving less than it otherwise would for things like expansion, hiring more experienced or reliable workers, etc.
(I have no idea what scientific, rational method you use to come to the pre-determined, political conclusion that someone’s income should be higher or lower than what it already is, but it seems to be very important to you to nurse your biases and see only the things that confirm what you have already decided to think.)
If this business is being so wasteful, that’s what economists call an “opportunity” for EVERY OTHER business in that line of work, to run its business more efficiently. Only a free, competitive market will provide the quantitative information to determine what a safe, competitive profit margin is. Everything else is a guess.
Also, why is it so bad for the economy when the “profit takers” have increased income instead of the workers? If, in your fantasy economics, a mere increase in money circulating about is the root cause of a healthy economy, then why is it bad when the “profit takers” have more and spend more, but good when the workers have more and spend more? The money’s the same. It doesn’t care who spends it.
(a) No one has been hurt. (b) Relies on an idiotic definition for ‘violent’.
Of course you would think that! You HAVE to think that, in order to rationalize your foregone conclusions!
The people who are hurt are the ones you never see — the ones who come to Spokane for all that extra mandated money, but can’t get a job because the business that wants to hire him doesn’t exist, because it can’t afford to pay $8 for a $3/hour job. They leave. Or they never come.
Also hurt are the people who lose their $8 job the quickest when the debt-fueled inflationary bubble pops. A vast amount of the growth in the economy in the last decade was driven by easy credit from the Fed through the banks and the government-sponsored mortgage programs. That money dried up. Suddenly, all of the $8 jobs that were dependent on people’s access to easy real estate loan money become UNAFFORDABLE. The $8 job that is suddenly revealed to be worth only $4 GOES AWAY when the employer can’t make ends meet paying $4. Has Spokane seen any job losses in the last couple of years? Every single one one of those jobs disappeared because it was on the margin, and was no longer economically viable, not earning more than it cost. I would expect many of those lost jobs to be low-end, minimum wage jobs.
That’s what we mean by “unseen” effects — the things that don’t happen as a result of your economic violence.
And, yes, wage controls are violent. If you have a job that is worth $4/hour, and anything above that is not economically justifiable, and you find someone who is willing to accept $4/hour to do it, but then a third party comes along waving a gun at them (i.e., the State, supported by YOU), and tells them that they have to agree to no less than $8/hour, that’s violent. Fining the business owner who attempts to pay less than the declared minimum is violent. If he resists the fine, he’ll discover just how real the State’s omnipresent threat of violence is.
What really happens is that the $4/hour job evaporates. It is an unseen effect of your wage controls.
The State is violence. All of it. That’s what it is and what it does. You can’t close your eyes and pretend otherwise. Wishing away unpleasant realities is what children do.
Magnus– thanks for your spirited response. But in all modesty I’m not a genius. I only have a depth of real-world business experience that seems to be lacking in this mostly academic forum. I don’t deal in elegant abstractions but form my conclusions down where the rubber meets the road.
So, I think I have something of importance to add. Unlike many, I’ve actually had to meet payroll and then pay myself last. You can’t beat that experience as a way of making one smarter than he was.
Onward. First point: “Let’s say that there’s some business who, in your arbitrary, uninvolved OPINION, is taking “too much” money out of the business, leaving less than it otherwise would for things like expansion, hiring more experienced or reliable workers, etc.”
We can establish metrics that make the calculation more objectively valid. How much money can be taken out of a corporation’s working capital, in the form of dividends and executive emoluments? Enough so that it doesn’t imperil that company’s long term future. Otherwise, the term we use for the process is “looting”. Some companies last for generations. Some even expand. Others, following a campaign of looting, selling off assets, ‘restructuring’ and the like, turn into fallen husks, hollow on the inside. They are fabulously ‘successful’ until one day, they aren’t.
The same holds true for those excessively ambitious companies who try to aggressively expand, gobbling up competitors and even firms in unrelated fields, all in a mad frenzy to spend investors’ capital that has become attracted to their aggressive burst of energy. In time these outfits most often find themselves overextended, with bills to pay that their partly digested components can’t meet. They go bust, in a very ugly manner that’s painful to look at.
Here’s a ploy that became very popular back in the eighties. Hotshot CEOs would come on board a viable company, promising to increase their share price and make all the investors happy. Yay! The investors see no problem with offering these sharks a share of the gains.
They then loot the place to boost short-term profit… at the expense of long-term gain. They sell off assets they call ‘unproductive’. They fire half the work force and give the remaining half two jobs to do for the pay of one. This halves the payroll– normally about the biggest line-item in the expense column.
The troubles don’t show up right away. Sometimes a dozen quarters can go by, where the company enjoys fabulous hothouse growth, like a dahlia that’s been fed too much plant food. But in time the company keels over, exhausted. It can’t keep this up forever, it’s been hollowed out from within. So the hotshot CEO sails away on his golden parachute.
To make a company viable, long term one needs to spend some money on tomorrow. He needs to hire the best young people to take over when his current talent retires. That means paying them well for their contribution. And he needs to constantly be retooling the product and the process. This costs money.
It’s the difference between a boss who loves the business he’s in (and understands it) and one who tells the board he can run anything, from an auto plant to a newspaper to a plant nursery, using some sure fire tricks he picked up in business school. One kind of boss leaves the business to his heirs. The other one walks away fast from the burning building.
You are a perfect example that businessmen typically know nothing about economics.
I figured out how to profit from business activity– to do well by myself, by my employees, by my community and by my customers. Can you say the same?
In fact, exactly what is the worth of economics if it doesn’t relate to anything out there in the world of mercantile activity? Is it just some ivory tower preoccupation, like philosophy?
For too many, business management is a process of extracting profit from sectors they should be working in concert with. They cheap up on their employees, they dump their trash in the woods because it’s cheaper, they bribe public officials to look the other way when they cut corners, and they put out a product that’s shabby and often overpriced.
I did all right by being fair in all my dealings, leaving myself and my own profit til last. And guess what? I made it up in added volume.
“In fact, exactly what is the worth of economics if it doesn’t relate to anything out there in the world of mercantile activity?”
The worth of economics is understanding that the perspective of the individual businessman is very different from the perspective of the market as a whole.
But I can say no more; I’m still in awe of your powers of perception. Imagine: if people only had more money, they could buy more stuff! Amazing insight!
1. “The worth of economics is understanding that the perspective of the individual businessman is very different from the perspective of the market as a whole.”
But if you look at all my comments you’ll find that a majority of them DO pertain to the overall consumer market. I’ve only made a handful of comments to the effect that the individual business owner also benefits when the economy as a whole prospers. And vice versa, that conditions that benefit the business owner, particularly the small business owner, are also good for the general economy.
Those conditions can be summed up as follows: “Lots more business. People have money to spend.”
2. “I’m still in awe of your powers of perception. Imagine: if people only had more money, they could buy more stuff! Amazing insight!”
Yes, it’s so simple you’d think anyone could figure it out. But the reason I’m posting here is that for some reason, the Austrians seem to be having a hard time with it.
I know, I know… if you keep just printing more money you eventually run into problems. But I’m sure you realize that’s not what I’m recommending.
Instead, one creates more easy money during times when the engine is stalled and needs some more gas. Then when it’s picked up, it starts to run hot. So before you start choking and coughing from a too-rich fuel mixture (to continue the analogy), you ease off on the gas. Meaning you retire, through the Fed’s action’s, the excess of that fresh money you’ve just created.
In other words what we should strive for in our fiscal policy is a fairly strict budget neutrality. Only not over the course of a year; over the course of one business cycle.
It’s pretty simple, you’re right.
Two: “(I have no idea what scientific, rational method you use to come to the pre-determined, political conclusion that someone’s income should be higher or lower than what it already is, but it seems to be very important to you to nurse your biases and see only the things that confirm what you have already decided to think.)”
When should an individual’s income be higher? When he can’t afford to buy those things he needs. Like medical insurance. Or rent. You’ll note my calculation, where someone making the minimum wage can afford to rent an apartment for no more than $377? Try to find one of those! All it means is that he can’t rent a place by himself. Thus demand for apartments is artificially lowered. There’s desire, but no ability to engage in economic activity.
Multiply this by millions of low-wage workers. If they had more money they’d translate their wishes into purchases. And more of today’s thirty million un- or under-employed people needing jobs would have to be hired on– to satisfy that fresh demand.
I know I’m making a value judgment here. But to me, bringing up the wages of low-wage workers, increasing the sales volume and thus the profits of companies catering to the consumer market (that is, all companies not doing government work on contract), and opening up new jobs for those millions of desperately unemployed needing them, is a good thing.
That’s right, if people had more money, they could buy more stuff. I’m in awe of your genius.
All right, see whether you agree with this one:
When people buy less stuff, businesses make less profit. Fewer people can be employed. Investors see less ROI.
Therefore put more money in people’s pockets and less into the financial markets. Businesses only borrow money from the bank when they’re not doing enough business to cover operating expenses. When they’re selling lots of product they don’t need to ever come to the banker.
Or, of course, they borrow money when they want to expand– and then they’re likely to fail if they’re not in an expanding market. (The pursuit of extra market share in a market of fixed size is an illusion.)
You’re right. These are very simple lessons. It’s surprising more people don’t figure them out for themselves.
Good God. People must produce to be able to consume; is that a simple enough lesson for you? If so, try this one: putting “more money in people’s pockets” is NOT the same as producing more.
“People must produce to be able to consume; is that a simple enough lesson for you? If so, try this one: putting “more money in people’s pockets” is NOT the same as producing more.”
That’s a chicken-and-egg statement. And in our current case, the egg comes first. We already have an excess of products on the shelf. What we’re waiting for is more customers. So it makes sense to try to create some new customers first, before making yet more product.
One does that by putting some seed money in their pockets. True, it’s a Keynesian strategy. But it’s one that works.
Once you’ve spread some chum on the waters, sales volume goes, up. Profits go up. Manufacturers, importers, distributors and subcontractors all have to hire on fresh help to meet the added demand. Business, in short, picks up.
And the guy you gave money to? He’s now able to find a job, and start paying it back in the form of income taxes on his new income.
So how does the government get its investment back? Through the multiplication of the number of taxable moments. If one postulates that an average taxpayer pays out 20% of his income in taxes, and that a dollar in the consumer economy recirculates five times in the space of a single year, two thirds of that dollar will come right back to the US Treasury in the form of income tax revenue. (Almost exactly 67%, with the two assumptions given.)
The remaining third comes back early in the second year. And I can tell you as a business man, ANY investment that starts making a profit for you as early as the second year of operations is a fabulous opportunity! You should put your money down on it.
Thus I would advise the federal government to spread some of that chum upon the waters. It’ll more than come back to them in two years’ time.
Please check my calculations yourself. I can tell you’re not convinced yet.
All I can say at this stage is that I hope you are a better businessman than an economist. Or, don’t quit your day job.
“When should an individual’s income be higher? When he can’t afford to buy those things he needs. Like medical insurance. Or rent. ”
So this is what you are meaning by “should”. Michael, do you think you can snap fingers and get stuff, and someone else will always just be able to make it regardless. I beg to differ. There are many, many levels on which you are just wrong on this, but as you tell us you are a man of science, you must be familiar with the Second Law of Thermodynamics? If your theory doesn;t respect this, I’d think twice.
What if a group of people marooned on a desert island want an MRI scanner? Can they just keep raising their wages to each other in shells until one appears? No – they are in an isolated system and their consumption is bound by the energy they can produce with twigs and straw. There is a process to go through to enable the construction of an mri scanner – a certain amount of man hours, raw materials, machine tools etc. – and no amount of money manipulation or accounting trickery will alter that fact. The mri scanner will not materialise. Wishing for one is pointless, and saying that they “should” have one is strictly meaningless.
The same principle applies in normal life – exactly. It is of course much more complicated for many reasons but nevertheless, it makes no sense to say that medical care and houses are a human right and therefore you should just demand them. Say everyone wants an mri, ct, pet and x-ray machine in their house. I am asserting this as a basic human right, an extension of your demand for medical care. I doubt the resources exists to build such a number of machines even if everyone stopped making anything else at all. So such a demand is meaningless and is the request of a child.
Now, the same thing applies to your demands. Of course you can just assert that the level of medical care that you say “should” be provided is much less and is therefore doable, and the level of housing that people “should” have is doable. But how would you know? And how many other basic human rights do you have up your sleeve that need to be done as well alongside these? Can they all be done? You have not the first idea – yet you continue to insist they all be provided by the government, a government whose performance in every way on every project shows that it couldn’t find its sofa in the living room.
And what’s more, this is the problem that markets solve. You are talking like only giovernment can make sure people will get such services – but this is 180 degrees backwards, the market will provide those goods and services according to the preferences individuals have, preferences which they demonstrate by spending their resources on the msot desired items first, and if the market comes up short of providing them all, then at least the most desired will have been seen to first. This is the adult way of doing things.
Feynman’s closing words to his report on Challenger:
“Let us make recommendations to ensure that NASA officials deal in a world of reality in understanding technological weaknesses and imperfections well enough to be actively trying to eliminate them. They must live in reality in comparing the costs and utility of the Shuttle to other methods of entering space. And they must be realistic in making contracts, in estimating costs, and the difficulty of the projects. Only realistic flight schedules should be proposed, schedules that have a reasonable chance of being met. If in this way the government would not support them, then so be it. NASA owes it to the citizens from whom it asks support to be frank, honest, and informative, so that these citizens can make the wisest decisions for the use of their limited resources.
For a successful technology, reality must take precedence over public relations, for nature cannot be fooled.”
Since when do employers (or the taxpayers) owe it to the workers to pay them a salary which will at least permit them to rent an appartment alone. When I was younger, I worked for minimum wage and rented an appartment with someone else. No one is entitled to be given more money than what he brings in for the simple fact that he exists!! If a living wage like you’re promoting it would come in effect, this would create serious moral hazard (worse than the moral hazard that already exists). If you want to rent an appartment on your own, then you have to climb the ladder by developping your skills, working and being patient? The entitlement culture is a big problem in the western world today. Forcing people to give you money (via the government through it’S various redistribution schemes or regulations) is theft and can only lead to more theft as people realizing the potential of looting others through the goverment want in too.
“Since when do employers (or the taxpayers) owe it to the workers to pay them a salary which will at least permit them to rent an appartment alone.”
It’s smart business to pay a living wage. Your employees tend to stick with you and to learn more about their job as the years go by. Also, they don’t resent you and sabotage the company, through theft, slow work or just surly dim-wittedness. So in time they start saving the company money, increasing profits and/or allowing you to adjust your prices downward.
Also it doesn’t cost you a thing in most instances. You raise your prices, you present yourself as a socially responsible company and you’ll find plenty of customers prefer you, even if they pay a few dollars more for what you do. That’s been my experience.
Plus, it reverberates throughout the community. When you’re paying your people more and getting better results, other business people start paying attention.
“If you want to rent an appartment on your own, then you have to climb the ladder by developping your skills, working and being patient.”
The essence of your comment about paying your dues as a poorly paid youth sounds an awful lot like saying that grit is good for your character. Cool! Give away half your money, bro. It’ll be good for your character.
Kid Salami, above, asks what I mean by “should’ when I say “When should an individual’s income be higher? When he can’t afford to buy those things he needs. Like medical insurance. Or rent. ”
It “should” be higher because then he can afford to buy that medical insurance. Or pay that rent. And when his personal tide is rising, it lifts all the other boats too. The general economy does better.
Besides, it didn’t cost me all that much. In fact I made money on the deal. And built a good team of workers.
“Kid Salami, above, asks what I mean by “should’ when I say “When should an individual’s income be higher? When he can’t afford to buy those things he needs. Like medical insurance. Or rent. ”
It “should” be higher because then he can afford to buy that medical insurance. Or pay that rent. And when his personal tide is rising, it lifts all the other boats too. The general economy does better.”
I know this Michael, you said it already. Ok, let me make it simpler. Let’s say I agree with you, i think everyone should have medical care. I think everyone should have an MRI, CT, pet and x-ray machines and a Radiologist in their homes to make sure they get up to date diagnoses, rather like people who have butlers only better. i think they “should” have this in the same sense you say. Would you back me up on this, yes or no? If not, why?
article from a couple years ago…
People lose jobs in raising minimum wage. It’s a fact. The state cannot force businesses to hire people. I don’t support the state. Participation should be voluntary. Not immorally forced.
Socialism is for das.
YOU LOVE IT!!!!!!!!!!!!
http://www.house.gov/jec/cost-gov/regs/minimum/50years.htm
Thanks for the article. A shame that it only cites lots of papers– but gives little reasoning behind the conclusions it reports. It might be more convincing if I could actually find and read some of those papers being cited.
Now you might read one of mine:
http://www.epi.org/publications/entry/briefingpapers_bp150
Undoubtedly the higher the minimum wage, the more small companies will decline to hire extra help. Their volume is too low to afford extra hands. But on the other hand many companies pay very badly just because they can get away with it. Tomato growers, for instance, often employ illegal immigrants to do the stoop labor. And they pay them half what they’re worth.
How so? Out of the cost of a supermarket tomato, the cost of the labor to harvest and pack is typically one to two cents a pound. You could double the pay of your field hands and raise your shelf price from $1.88/lb. to $1.92/lb. No one would know the difference. But it’s a matter of principal. They believe in cheating the help.
It’s also the case that massive unemployment in labor-intensive fields has followed NAFTA and other FTA rules allowing companies to migrate their operations abroad. The purpose is to escape having to hire people at US wage levels. This, of course, is shooting our economy in the foot. Since NAFTA’s been put in place we’ve had to borrow to spend. We used to earn to spend.
However it is also a fact that areas of the country with higher wages see more growth. They attract our best talent, who go there in search of jobs. And they attract the best companies, who go there in search of talent.
And they gain high enough tax revenues from the greater volume of transactions that they can afford to make themselves over as attractive places to live and work, with good public schools and strong state university and community college systems.
North Carolina has been one of those places. Yet if you’d looked at the unemployment stats since 2007 you’d find that our unemployment rate had become one of the highest in the country. Why? Because so many people come here from other states to look for work! Once the recession hit, it was all the newcomers who were out of jobs. It was nothing systemic in the makeup of our high-employment, high-wage culture.
If you’d care to do some academic research yourself, you might take as your topic a review of all the metropolitan areas with the highest growth rates. Then compare those standings with the areas that have the highest wages. I believe you will see a link.
Now do a study of all the areas with the lowest growth in the country– say the delta lowlands of Mississippi and Louisiana. Well sho’ nuff now! Don’t they also have the lowest wages?
This one’s in response to Kid Salami. Once again the blog administrator has left no convenient icon below your comment so I can place my response next to your query.
You ask “ok, what is the theory then that you are using to decide what the “sweet spot” is? You appear to be just eyeballing it. What is the theory that illustrates your point and would allow us to at least try, in a crusoe-type scenario, to work out the optimum wage increase? And how do we define the “sweet spot”? “Sweet” for whom?
“If you don’t have such a theory, your comments on your love of the “scientific method” will be called into question.”
You would have done well to have actually been taught what the Scientific Method is. Putting the question in this way makes it apparent you’re confusing theory with experimental result. One begins with observation, forms a theory and then either proves, disproves, or fails to prove it through controlled experiment.
I would first propose that some tax rates yield a higher revenue than others. I trust I don’t have to take you through the proof of that theory.
I would also demonstrate that a very, very low rate will yield a very low revenue. Okay with that one?
I would also demonstrate that a too-high rate will yield a lower than optimal return. Either business will be slowed, reducing the size of the tax base; or there will be general noncompliance (a tax revolt, as in Greece); or businesses will leave the country for better venues; or businesses will invest more money in corrupting the Congress and/or the IRS. Agreed?
So if we have lowered tax collections at either extreme and better tax collections in the middle, we have something like a bell curve. And the question is, which point along the curve yields the optimum amount of taxes actually collected?
This one’s not hard to work out. Tax collections as a percentage of GDP have been tabulated. They were high under Bill Clinton’s second term (1996-2002 tax years) and dropped drastically after the tax cuts of 2002-04 (see tax years 2003-09). Check these figures:
http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=205
Maximizing the yield is a very important calculation, if we’d like to see the country get out of debt. Now we can also plot a similar bell curve with wages. We should be in agreement that when they are too high, businesses enjoy no profits. And when they are too low our consumer-based economy goes into a slump from loss of sales volume. Therefore there is an optimal level for wages.
And it is NOT where the business owner would like to see them, which is zero. For all your love of the natural market, we are all ill-served in times like the present, when unions or other countervailing forces are weak and business owners and directors run the show. Businesses lose money and are forced to lay off help. Everything slows down until new customers appear. And they can’t appear because they’re all out of work. So once again, no profits. Our last several recessions have all been of this type: consumer-driven sales slumps resulting in massive contraction in employment. (Naturally there have been other factors.)
In fact, as you’ve just now seen, there is a similar bell curve that can be plotted for business profits. The maximum yield on investment (considering the wages one pays to be one’s investment) is to be found somewhere in the middle. Too low and your unmotivated employees quit. Too high and you go broke. Just right? Dedicated staff invested in seeing that the company remains successful. And promoting as well as purchasing the product.
Questions?
“You would have done well to have actually been taught what the Scientific Method is. Putting the question in this way makes it apparent you’re confusing theory with experimental result. One begins with observation, forms a theory and then either proves, disproves, or fails to prove it through controlled experiment.”
No, what I’m saying is that your comment about the “sweet spot” means your model has introduced a parameter (previously is was just a rise in wages which helped, you then said that you can have one that is too big), and therefore you need some mechanism to predict the value of this parameter. This is obviously correct – you hadn’t provided this so i requested it. i’m not sure what you think i’m not understanding.
But its not even possible to answer really when you garble the english language to such an extent as to say things like
“And it is NOT where the business owner would like to see them, which is zero”
This is just nonsensical and is just wishful thinking. businsess owners who pay their employees zero are necessarily going to stop trading – so again you confuse a wishful thinking with reality.
And the sum total of all that? The value is
“..is to be found somewhere in the middle. Too low and your unmotivated employees quit. Too high and you go broke. Just right? Dedicated staff invested in seeing that the company remains successful. And promoting as well as purchasing the product.”
Well, that is not helpful. Saying you should pay staff the amount so that “Dedicated staff invested in seeing that the company remains successful” has an information content of zero- it’s like telling some that the way to run a business is to make sure you take more in sales than your costs.
Well, at least now you know what a sweet spot is.
It’s the same with the money supply. Start reducing it and you fall into a slow-business depression. Increase it too much and you get wage and price inflation chasing each other. What you need is neither extreme, but that sweet spot instead– somewhere in the middle.
If you ever try running a company yourself, I would offer a bit of advice. Pay your staff just as little as you can get away with! No benefits, no vacations, nothing but the least the law allows. See what kind of work force you end up with.
One thing’s for sure: if I ever do run a company, I hope I have half as much time as you obviously do to spew large amounts of rubbish on internet forums with great frequency.
“If you ever try running a company yourself.”
Why would you assume I have never ran a company or employed people? Whether this is correct or not is not in any way relevant to this discussion. The need you have for constantly bringing yourself into the discussion is telling.
What you said – very clearly – in response to the question of why we shouldn’t raise the minimum wage to $100 is
“The one about raising the minimum to $100 is tired and tattered. There is a sweet spot to the wage-price issue– as there is to many other issues…”
You say:”Well, at least now you know what a sweet spot is.”
You think you just explained that to me? If you want to start teaching me about mathematical modelling and parameter estimation, please try – but you may find you’ve picked the wrong person to lecture on this subject.
“If you ever try running a company yourself, I would offer a bit of advice. Pay your staff just as little as you can get away with! No benefits, no vacations, nothing but the least the law allows. See what kind of work force you end up with.”
Please note: these two statements are not the equivalent:
1) raising the minimum wage hurts the economy – mainly because people who cannot, for whatever reason, reach that level of productivity are doomed to stay unemployed.
2) if the people who will fit the role you are trying to fill can generally receive $X dollars per year, it is better as an employer to offer less than this so that you get sub-standard employees who are not suited for the role they are given.
Your answer suggests that you are confusing these. You think that because I think 1) then I must think 2) also, hence your bit of “advice”. I don’t understand why you are confusing two completely different statements.
I think the reason may be that you want to avoid answering the key question: you say raising the minimum wage in some circumstances, according to some unspecified “sweet spot” of an amount, helps the economy, but that raising it too much is problematic. I disagree 100% with this. But can you please answer the question I asked already:
“If you can explain to us how people who cannot be productive enough to justify the minimum wage can get jobs, please do. Should the employer take the hit for the common good? What? How do the people at bottom of the ladder, who you claim to care about but really don’t, get jobs? it’s a simple question.”
I’m all ears. Who pays for the difference between the productivity of the worker and the minimum wage level? Who?
“For all your love of the natural market, we are all ill-served in times like the present, when unions or other countervailing forces are weak and business owners and directors run the show. Businesses lose money and are forced to lay off help.”
Huh? I thought you said business owners are currently “running the show.” How can they lose money when they’re in control of things?
“How can they lose money when they’re in control of things?
Because they’re dumb. Or, more specifically, short-sighted. Those I’ve known consistently cheap up on expenses precisely where they should be putting their seed money. They don’t know how to act in their own best interest.
Or, in a corporate setting, they fail to act in their company’s best interest. Instead they figure out a way they can grow fat themselves while running the company into the ground (see ‘looting’).
Almost every manager, owner or CEO believes, as I’m sure you do, the conventional wisdom that you always pay your people as little as possible. Those who do well, like Steve Jobs, pay as much as they can so they can keep the best talent.
Nice try at a ‘gotcha’ though.
Nothing of what you’ve said qualifies as economics. It’s all just bias, anecdote and subjective interpretation.
You still haven’t addressed two key points:
1. The unseen effects of wage controls. Your comments reflect zero comprehension on your part of this basic economic concept.
2. Why is having more money in the hands of one set of people that you like (workers) more economically beneficial than the same money in the hands of people you don’t like (“profit takers”)?
1. “The unseen effects of wage controls. Your comments reflect zero comprehension on your part of this basic economic concept.”
I’d have to go on for pages and pages to cover all the particulars and specifics. And I don’t want to monopolize the forum. Why don’t you specify one such unseen effect and ask me what I think of it?
2. “Why is having more money in the hands of one set of people that you like (workers) more economically beneficial than the same money in the hands of people you don’t like (“profit takers”)?”
The value judgement (that I “like” or “don’t like” someone) is your editorial gloss. Not present in my initial statement. But it’s easy to show that money in the hands of poor people does more work in the marketplace than does money in the hands of the rich.
Give someone with a net worth of $100M another million and he’s probably not going to buy any more stuff. He has already satisfied his material wants, and the shift from $100M to $101M is a negligible shift that does not affect his buying habits in the slightest. Instead, he gambles with it. He places the money in one of the financial markets, where it so often does no significant work in moving the general economy along. This kind of money generally circulates and recirculates in the same rarefied stratum, never touching the street.
On the other hand, give a thousand minimum wage people a thousand bucks each, and they’ll all rush out to spend it on things they really need.
So what? This contributes to the bottom lines of every business purveying something they need. The business owners make more profit. And they hire more people. Etcetera, I’ve said all this before.
Money is a medium of circulation. When it doesn’t circulate adequately through every level of society, it can’t do its job. In that, it’s much like our own blood, which has to go to the brain as well as to the feet.
For that matter, one can imagine a society that mandates equality in wages and earnings, so that there’s lots of money at the bottom (everyone has savings accounts now instead of credit card bills) and there’s inadequate investment money available at the top. So loans to businesses might well be hard to find and… oh, wait a minute! If there’s all that money in savings accounts, then the banks can STILL lend to businesses and invest in joint ventures.
So maybe we actually DON’T need rich people to make the economy run. I’ll have to think this one through… certainly there must be some useful purpose we can put them to. Right?
“Money is a medium of circulation. When it doesn’t circulate adequately through every level of society, it can’t do its job. In that, it’s much like our own blood, which has to go to the brain as well as to the feet.”
Metaphor is the last refuge of the ignoramus.
Not at all; allow me to illustrate.
Those portions of society that don’t enjoy sufficient monetary circulation are a net drag on the economy as a whole. They can’t feed themselves, requiring food stamps. They can’t house themselves, requiring public housing programs. They steal from others, hide their sorrows in drugs, neglect their children and otherwise get into lots of trouble. This clogs the courts and leads to our having the highest incarceration rates on earth. And incarceration doesn’t come cheap. You and I pay dearly for the results of their poverty.
I suspect we’d actually be saving money to create more jobs. The War on Poverty went wrong because it only gave people money to exist– not to work and be productive. This set up the prospect of multi-generational poverty, and an unhealthy reliance on Uncle Sugar. It was a good try, but it failed. The plug was pulled back in 1995. We need a fresh approach if we are to rid ourselves of this great burden and expense.
Interesting; you defend your use of metaphor by appealing to it to argue that the pathologies associated with povery affect us all. Very impressive: circular, AND irrelevant.
You haven’t explained to anyone how we DON’T pay more for poor people. Try to be more specific in your comments, and rely less on vague abstractions.
Try, for instance, to point out exactly where my reasoning is ‘circular’.
Try also to point to where I employ metaphor in this line of argument.
And try to point out where my reasoning is ‘irrelevant’. If it is so, then it’s of no importance to us that we pay, not only to support ourselves, but to repair the consequences of sharing our country with people who are poor, dysfunctional and/or merely unemployed. They cause problems they can’t afford to fix. We fix them at our expense because they affect us too. Ergo, they cost us money to maintain in their present state.
I would agree with you though, that my line of reasoning is quite ‘impressive’.
Seriously, you claim money is a means of circulation in the economy like blood in the body, and you don’t see how you’re employing metaphor here? Absolutely amazing.
Funny thing about abstractions: they help you see the essentials below superficial features. If you’d actually studied economics, you might understand that. You might also understand that money is a medium of *exchange* and that its value comes from having a purchasing power.
Why don’t you specify one such unseen effect and ask me what I think of it?
I have, several times now.
The main one with forced wage controls is that diverting money away from employers and into the hands of marginal wage earners doesn’t increase productivity, and doesn’t make low-wage jobs more economically valuable. It merely makes jobs that are worth less than the mandated rate either disappear or go into the black market. As a result, the disappearance of those jobs is what is UNSEEN, as the result of your wage controls.
You, however, having no demonstrable ability to engage in system-based thought, want to count only what is SEEN as the result of your generosity with other people’s money — you only count the guy whose wage goes from $6 to $8. But you must count ALL the jobs that are affected by the wage controls, including those that are prevented from existing or are eliminated, which disappear either upon the law’s enactment, or later when the economy contracts and the market price for a large number of marginal jobs falls below the mandated minimum.
Same thing with unions. The union is great for the guy in it, but a real hardship for the guy it excludes.
This is all in Economics in One Lesson, by Henry Hazlitt. It’s available for free online. It’s also in Bastiat’s essay, “That Which is Seen, and That Which is Not Seen.” Both are basic, introductory free-market stuff, which you obviously have not bothered to read before endlessly repeating your anti-profit, anti-wealthy claptrap.
As for your idea that wealth in the hands of the wealthy (in savings or in stocks) doesn’t free up credit for loans for business expansion and capital goods, is just silly, and not worth addressing.
[The problem] “with forced wage controls is that diverting money away from employers and into the hands of marginal wage earners doesn’t increase productivity, and doesn’t make low-wage jobs more economically valuable.”
Of course it does! We’re just going round and round.
More income in the hands of people who perform below their potential to constitute demand, the greater the demand that drives the production engine. They wave their fists full of dollars– and in response the manufacturers and shopkeepers of the world fill their shelves with wares on display for them to buy. How is that not mandating an increase in productivity?
You’d have a more visceral appreciation for this basic truth if you were a shopkeeper. There’s nothing worse for business than for your potential customers to have no money.
And in fact higher wages DO make their jobs more economically valuable, when they have more money to spend on televisions, and automobiles, and even more pizzas from the very shop they work in.
“As for your idea that wealth in the hands of the wealthy (in savings or in stocks) doesn’t free up credit for loans for business expansion and capital goods, is just silly, and not worth addressing.”
That was not my idea. So if you got that impression, maybe the idea IS worth addressing. In fact investor money is currently very basic to the flow of operating funds into companies that can’t quite make it without the constant need for more loans.
My point, though, was that this demand for business loans is normally more than fully satisfied (when we’re not in a recession). And there’s still vast sums of money left over in investors’ pockets, after they’ve saturated the market for legitimate business loans. And instead of letting any of this money go toward a more productive purpose, they gamble with it. And normally lose, as yet another speculative bubble gets punctured.
They’d rather let a million bucks ride on some collateralized debt obligation than they would put a ten spot in the Salvation Army bucket. Or give their secretary a fifty cent raise. They get low marks in social responsibility. Because after all they think it’s THEIR money. We can’t have it. That’s what’s led directly to the mess we’re in. People don’t realize we all drink from the same well.
Investment in viable businesses? I’m all for it. Even though when I was running a business I made it a point never to ask for borrowed funds. You get a loan, you get a partner. I always operated on profits earned, not a wing and a prayer.
Beefcake– You say “Seriously, you claim money is a means of circulation in the economy like blood in the body, and you don’t see how you’re employing metaphor here? Absolutely amazing.”
I had departed from the use of that metaphor to give you a concrete description of my argument– a real-world application. Therefore you cannot use the same objection, that I rely on metaphor.
“Funny thing about abstractions: they help you see the essentials below superficial features. If you’d actually studied economics, you might understand that.”
That comment is far more vague than any metaphor; it is an airy abstraction. And you fail to show where, and whether, it applies.
“You might also understand that money is a medium of *exchange* and that its value comes from having a purchasing power.”
Duh. All I can say. My discussion has been with reference to demand and its stimulating effect on business activity– that is, purchasing power. And the more widely it circulates through the whole population, the more activities are stimulated, and the more people are lifted.
But mostly, you still manage to evade any discussion that supports your idea that we don’t all support the poor and their bad decisions– and that it’s very expensive to do so.
If you want to discuss politics and your idiosyncratic versions of social norms, based on nothing but your narrow experience and anecdotes, there are other websites where you can do that.
Since you won’t discuss economics, which is what this website and the Mises Institute are dedicated to, other than your childish magical bootstrap explanation of how more dollars gifted to workers creates wealth out of thin air, then I don’t see the need to continue talking.
If you are such an enlightened businessman, with allegedly higher morals and wisdom than most of the CEOs of America and the entire investor class combined, then please use your prodigious gifts to give dollars to everyone you can find, and thereby rescue the economy of the Western world.
The people of planet earth are depending on you, michael. Get to work.
Thanks for your perceptions. But I think there is a purpose in contrasting the sort of textbook economics we find in academia with the actual conditions they purport to represent, out in the world where people live. The thing I find common to nearly every comment here is that it is an abstraction, an admiration of some heavenly geometry where everything in its constellation just neatly balances out.
But life’s not like that. Life’s sloppy and loose, and people don’t always behave ‘rationally’. And there is an ulterior purpose to human commerce, beyond just getting the cosmic scales in balance. That is to use whatever tools for the exchange of goods and services we can bring to bear, to the task of feeding and clothing the world’s peoples. Then, once that mighty task has been accomplished, maybe we can progress toward enriching our personal lives even more, by producing things of value and offering them, in trade if one prefers, to others. Are we just performing all this activity to reward with emoluments those who have made themselves “masters of the game”? I hope not.
“..based on nothing but your narrow experience and anecdotes..”
Anecdotes of actual experiences perform the task of linking lofty economic theories to real-world applications. I’m sorry if that offends you. I just find the collective “you” to be living in a world where never is an elegant theory to be undermined by an inconvenient fact. So I provide some facts.
And I find your attempts at debate to be less than effective when, instead of coming up with arguments that undermine or contraindicate my conclusions, you characterise my comments by calling them “childish magical bootstrap explanation(s) of how more dollars gifted to workers creates wealth out of thin air”.
Giving people with unsatisfied needs more money to purchase those needs does stimulate economic activity. That’s undeniable. It spurs producers to produce more, just as leaving demand low spurs them to produce less. Certainly any economist must agree with such an obvious statement! One should accept it and go on from there, saying yes, but it also raises more problems as it does so.
That would be a productive line for the discussion to expand along. But instead I get what looks very much like a childish denial, and a closing of one’s mind that actively shuts out accurate comment. It’s like sticking one’s fingers into one’s ears and saying “Nya nya nyaah I’m not listening.”
If you really don’t care to engage, you don’t have to. Judging by the number of those here who do, however, I would say that the process of debate is having its proper effect. Diverse points of view are offering themselves to one another in the forum of ideas. And hopefully, we’re all taking away something valuable from the experience. I know I am. Learning new things, that is.
2. “If you are such an enlightened businessman, with allegedly higher morals and wisdom than most of the CEOs of America and the entire investor class combined, then please use your prodigious gifts to give dollars to everyone you can find, and thereby rescue the economy of the Western world.
Done that. I’m retired now, living off the proceeds of a life that’s been productive for me, for my employees and for my customers. And fortune’s been good to me. Now that I’m idle, and a little weary, I still spin off more in dividends received than I can spend.
So every December I pull out my file of all the worthwhile causes I know of, and allocate some of my excess rewards to each, in the form of a dividend to them. I find it more rewarding than sitting atop my pile of gold, marveling at its bulk and heft.
BTW a lot of very rich guys have done the same, on a much larger scale. Andrew Carnegie, for instance. Giving some away didn’t hurt him.
And I like to think it does a little bit of good. Would that more people felt this way!
Michael – earlier you said
“But when a person elects to spend his own money on something, there is no such thing as a “foolish decision”. It’s for him to say, not you or me.
Read more: Milton Friedman and the Human Good — Mises Economics Blog http://blog.mises.org/12905/milton-friedman-and-the-human-good/comment-page-1/#ixzz0qX9TkdA8
But now you’re saying
“So every December I pull out my file of all the worthwhile causes I know of, and allocate some of my excess rewards to each, in the form of a dividend to them. I find it more rewarding than sitting atop my pile of gold, marveling at its bulk and heft.
BTW a lot of very rich guys have done the same, on a much larger scale. Andrew Carnegie, for instance. Giving some away didn’t hurt him.
And I like to think it does a little bit of good. Would that more people felt this way!”
So, which is it? Are people perfectly entitled to spend their money as they see fit, including not spending their gold by sitting on it, or are they not. Your view is not really clear from your comments.
Looking over all my comments here, it looks awfully like I’m saying that we’re each of us free to spend or save what we own as we see fit.
There’s a difference, though. If we elect to gamble away our money on speculative adventures, or save it in a money bin so we can bathe in it, it does no socially useful work. Whereas if we invest some of it in something outside ourselves, whether it’s contributing to causes we believe in or paying our employees a little extra, we accomplish some good and help make the world a better place.
And I just like living in a better place, that’s all. To me that’s money well spent. But surprisingly, the more I passed on to my customers, in the form of lower prices, the more customers I found I had. And the more I passed along to my crew, the better they got at what they did. And their team spirit saved the enterprise money, in the form of fewer hours on each job.
So I think it’s been a case of my doing well by doing good. Funny how that works.
“Looking over all my comments here, it looks awfully like I’m saying that we’re each of us free to spend or save what we own as we see fit.”
Yet you also say
“when prices and wages are under the control of profit takers. People who bleed all the money out of a system so there’s nothing left to support the actual operation.”
Read more: This book made me hate socialism all over again — Mises Economics Blog http://blog.mises.org/12909/this-book-made-me-hate-socialism-all-over-again/comment-page-1/#comment-694318#ixzz0qgPWw24N
So, everyone is free to spend their money as they see fit. Erm, except employers, who when they spend their money as they see fit in a free and voluntary transaction between two adults, they “bleed” the system. And also except the employers who, in trying to find someone to do a perfectly legal and harmless task voluntarily, are obliged to employ people for either more than their worth (are you advocating that the employer bear the cost of the difference between the worker’s productivity and the minimum wage? I’m assuming you are, but if not please enlighten me) or leave a position unfilled.
So, not quite everyone is free to spend their money as they please it seems. I’m still not clear what your view on this is.
He’s enlightening us by trying to revive the long refuted theory of Keynesian underconsumption.
Really good article, thank you for sharing, I will always look at the future, too talented.
Took out a few hours last night to read the book. To be honest, I was kinda disappointed. The writing lacked emotional charge, and this presentation made it come over as very weak to me. Events that should have come off as being incredibly sad barely got a reaction out of me at all.
Giving people with unsatisfied needs more money to purchase those needs does stimulate economic activity. That’s undeniable. It spurs producers to produce more, just as leaving demand low spurs them to produce less. Certainly any economist must agree with such an obvious statement! One should accept it and go on from there, saying yes, but it also raises more problems as it does so.
That would be a productive line for the discussion to expand along. But instead I get what looks very much like a childish denial, and a closing of one’s mind that actively shuts out accurate comment. It’s like sticking one’s fingers into one’s ears and saying “Nya nya nyaah I’m not listening.”
You really haven’t read a single thing by Mises or Hayek or any of them, have you? Why do you even bother to post here? You should just send letters to yourself, since you love to hear yourself talk so much.Here’s what you, for the 9th time, have FAILED to comprehend — the extra money you “GIVE” to workers to spend must first be TAKEN from somewhere. You are, on the whole, creating NOTHING and expanding the economy by ZERO, at best. You are, at most merely DIVERTING money away from where it otherwise be.
Whatever economic activity is NOT DONE with the money that you have forcibly diverted from Person A to Person B becomes something that is UNSEEN as a result of your forcible diversion of money. Sometimes that means that there is less money to hire other workers, who go from marginal employment to unemployment. In other words, there is a COST that ALWAYS AND INEVITABLY offsets any supposed BENEFIT that you claim to have created.
If you had bothered to read even Henry Hazlitt’s book, which is written for laymen and beginners like you, you would know this and not waste everyone’s time.But, it’s actually worse than a break-even result. In reality, which you claim to know so much about, the forcible diversion of money from A to B is always and inevitably a NET LOSS is the economy as a whole, because (a) there are enforcement costs that must be paid, and (b) the ways in which B spends that extra money does not represent an increase in his actual economic productivity. It instead represents your willingness to use aggressive violence to pry it from A’s hands. (Actually, you applaud and cheer-lead for other people to do it, people who are willing to get their hands dirty, while you sit back and congratulate yourself for being so generous with A’s money). Therefore, the extra productivity that would have come if B were to have earned the extra money rather than get it by fiat, is lost.
A burglar is bad for the economy, too. The burglar gets an unearned benefit, and often spends his new-found wealth freely, but the act of burglary is not a net economic stimulus any more than wage controls are.
Here is what I am sure you will NEVER comprehend — every forcible diversion of money away from the voluntary free-market pathway that it otherwise would have followed is always and forever a net economic loss. Every time. Every tax. Every wage control. Every act of price-fixing. Every subsidy. Every unit of inflated fiat currency issued. All of it. EVERY SINGLE TIME. This is as true and rigid a law of nature as are the laws of thermodynamics.
You can’t wish that away. Calling your violent, aggressive, forcible diversion of money from A to B by some new propaganda term means nothing. Economic REALITY is unchanged by your self-delusion.
I know this is a hard reality for deluded people like yourself to face. But denying reality is even harder.
You are wasting your breath. He will turn around and say “Look at this example”. He insists that empirical knowledge trumps theoretical understanding under any circumstances. He lives and argues under the premise that “theory” is just a person’s opinion and that “facts” are all one can go by. He pretends to dismiss all of Austrian Economics thus. He is here to “educate” all of us and to wean us all off this silly theorising and into the hard reality of the world as it exists.
The dumb mutt does not understand basic concepts such as axiomatic concepts and the human faculty of reason.He has lived (as per his claim) a long life but has not realised that to live as a human is to act as per the “direction” shown by one’s reasoning mind. He does not realise and recognise that the “theory” that he dismisses is based on an unshakeable foundation of undeniable and self-evident aspects of reality and that that is why it is irrefutable.
Truly, there is no point arguing with michael, he is impervious to logic. He has, among other things, claimed that it is an empirical question whether production must precede consumption, put forth the metaphor of money as an economy’s “lifeblood” as a serious argument (and then insisted that he is not resorting to metaphor), and denied that automobile manufacturing is a capital intensive industry (because they use assembly lines). He’s also advocated that food speculators be ripped limb from limb (literally). Plus interjecting his irrelevant politics as supposedly important insights to be addressed. He claims to be a successful business man but seems to have no limits on his time to post constantly here. He’s a perfect example that businessmen typically don’t understand that their own narrow business perspective is quite different from the perspective of the economy as a whole. My guess is, he’s pulled this act at other forums before, and is either banned or ignored, then moves on to the next victim. I would advocate ignoring this fool.
Michael – I was wondering if you wanted to answer my questions here, maybe you didn’t see them
http://blog.mises.org/12905/milton-friedman-and-the-human-good/#comment-693795
and
http://blog.mises.org/12905/milton-friedman-and-the-human-good/#comment-693932
Socialism and Christianity: The Theory of Socialism Emerged as a Reaction to Christianity Prevailing at the time of Karl Marx
This article will also answer your all questions.
My Ode to Michael:
John Maynard Keynes, wrote the book on modern macro
The man you need when the economy’s off track, [whoa]
Depression, recession now your question’s in session
Have a seat and I’ll school you in one simple lesson
BOOM, 1929 the big crash
We didn’t bounce back—economy’s in the trash
Persistent unemployment, the result of sticky wages
Waiting for recovery? Seriously? That’s outrageous!
I had a real plan any fool can understand
The advice, real simple—boost aggregate demand!
C, I, G, all together gets to Y
Make sure the total’s growing, watch the economy fly
We’ve been going back and forth for a century
[Keynes] I want to steer markets,
[Hayek] I want them set free
There’s a boom and bust cycle and good reason to fear it
[Hayek] Blame low interest rates.
[Keynes] Nah nigga… it’s the animal spirits
You see it’s all about spending, hear the register cha-ching
Circular flow, the dough is everything
So if that flow is getting low, doesn’t matter the reason
We need more government spending, now it’s stimulus season
So forget about saving, get it straight out of your head
Like I said, in the long run—we’re all dead
Savings is destruction, that’s the paradox of thrift
Don’t keep money in your pocket, or that growth will never lift…
because…
Business is driven by the animal spirits
The bull and the bear, and there’s reason to fear its
Effects on capital investment, income and growth
That’s why the state should fill the gap with stimulus both…
The monetary and the fiscal, they’re equally correct
Public works, digging ditches, war has the same effect
Even a broken window helps the glass man have some wealth
The multiplier driving higher the economy’s health
And if the Central Bank’s interest rate policy tanks
A liquidity trap, that new money’s stuck in the banks!
Deficits could be the cure, you been looking for
Let the spending soar, now that you know the score
My General Theory’s made quite an impression
[a revolution] I transformed the econ profession
You know me, modesty, still I’m taking a bow
Say it loud, say it proud, we’re all Keynesians now
Michael, you seem to be a strong believer in circular flow without reason. You also don’t appear to believe in scarcity. Without giving reason you also imply demand creates supply, when in real terms this is false. Supply creates demand. If there is no product consumers money is meaningless.
The only way in which more money = more production is in the way that the government causes a certain amount of money to be necessary (wage controls & price controls). Sticky prices/wages don’t last in free market economies without government restrictions.
Money is a means of exchange, and it’s a means towards showing the market what consumers demand most. So yes, in that way money may cause a decrease in the production of one thing by not being used towards that one thing. But that money will be diverted towards other purposes. If the money is horded instead, it will cause producers to cut prices (and wages) but then the purchasing power of money is higher. Only in a magic system does more money = more production in real overall terms.
If I explain how it works six times and you still don’t understand it, I have to accept that fact. Consumers with dollars in their hands stimulate production of goods and services, to service that demand. When they’re broke they stimulate nothing.
Surely you must be aware of the concept of opportunity costs? You neglect to take into account that in order to increase consumption, saving must be foregone.
“Giving people with unsatisfied needs more money to purchase those needs does stimulate economic activity. That’s undeniable. It spurs producers to produce more, just as leaving demand low spurs them to produce less. Certainly any economist must agree with such an obvious statement! One should accept it and go on from there, saying yes, but it also raises more problems as it does so.”
There is one problem with your little theory: you do no take into account the role of time in production. Let’s say that the people of Greece forgo consumption a portion of their income; consequently, the result is a fall in the natural rate of interest. This reflects the consumers’ increased demand for future goods. Thus, extension of the processes of production (more remote in time from the procurement of the final consumption good) will be profitable until they’re no longer economically permissible. Here we see that production must be coordinated toward the consumers’ time preference, since it is they who are ultimately sovereign in the market economy.
What you seem to want is to obviate sticky wages through the issuing of fiduciary media (which only raises profits and wages in the short-term). Let’s forget that more roundabout processes of production require the accumulation of capital, and that capital cannot function independently of labour (such is why real wages will continue to rise even though profits will inevitable be subject to the law of diminishing returns). No, what we need is another business cycle in deference to your altruistic intentions.
We currently have a glut of unsold goods in the market, as we did last recession, back in 2002. And in areas where we have not, we have productivity stalled at far less than capacity. Both these factors tend to stabilize the economy at some lower level, where low employment, low consumption and low productivity all come to rest together.
That’s what you get when you do nothing. Society has a smaller economy. Put elsewise, we are all the poorer. But we are thinking creatures, and think we can do better than that. So we inject money where it is likely to increase consumption. And that increase in consumption gives rise to an increase in productivity, requiring an increase in employment to satisfy the newly restored demand.
Which raises the economy back to its prior level. THEN you figure out how you want to pay for it. And in my view it would be appropriate for the Fed to begin to raise rates, slowing the velocity of money, and to sell off its bond portfolio, retiring other of its money. In other words once you bring the pot to a boil again, back off on the heat and just let it simmer quietly.
Or, Plan B, just tell everyone they’re not as rich as they were. And if they once had a job, they now have none. And to get used to it, because it’ll be that way for an indefinitely long time.
That sort of bad thinking is what got us into having a glut of unsold goods. It’s called malinvestment and increasing the money supply in key areas only bandages over the problem and causes the malinvestment to continue far longer then it otherwise would. Triggering more injections of money, more malinvestment, more busts.
The economy improves because we are able to learn from past mistakes and improve the efficient use of the resources at hand. Better uses of raw material, directing capital to more profitable ends, more efficient use of labor, etc etc. The profit/loss provides the feedback loop that lets people know that they are doing things correctly.
Injecting money into the economy just reinforces bad behavior and poor decision making of those that are currently in charge by hiding the consequences of their decisions.
Michael,
Ask your employees if they need more money and how much then back your talk up with a raise. You should probably ask them this question each couple of months since people’s needs change.
Also do you provide auto insurance? Or do you line your pockets with profits while forcing your employees to secure auto insurance for themselves.
Jimmy Choo’s beginnings can be traced back to his workshop in London Borough of Hackney, North London, which he opened in 1986 by renting an old hospital building.
Manolo Blahnik popular main reason, is even shoes with tall and thin, but still strong, can withstand the body weight, excellent balance and comfort, something the Manolo Blahnik I also proud.
Coach handbags and purses are made from the highest quality leather and are manufactured by highly skilled workers that take pride in the products they make.
In this connection must read this article The Dark Side of Socialism: Can the World achieve the Utopia of a ‘Classless Society through Communist Manifesto?
I was reading about socialism today, I personally don’t like this approach. mostly this started from former soviet union.
What happened in Soviet Union and what will happen under any socialist nation, given enough time, is just about the same thing. This is a lesson that the western Europeans are going to learn the hard way in a couple decades. Although I doubt they will realize it under many decades later.
It’s a failed concept built on bad ideas and misunderstandings on how the world works. The saddest thing is that people are so blind that they simply ignore what is not convenient and blame the bad consequences of government action on ‘the capitalists’.
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